Introduction

Nobody likes to pay taxes, especially when their annual income is needed to support a family. However, if you are one of the thousands of men and women who serve their country in the military, there are several tax breaks and programs that can save you hundreds or even thousands of dollars in taxes each year. This article goes over the tax relief acts, tax exclusions, and credits that active military personnel can use on their individual income tax returns. While these tax tips will be helpful for active military members they may not be applicable to military pensions or veterans’ benefits. For tax help on these topics you will need to read IRS publication 525.

Tax Acts and Programs That Apply to Active Military Personnel

Servicemembers’ Civil Relief Act

This act has several benefits. The first tax related benefit of this act is that it eliminates state income taxes for nonresidential servicemen and women. If the only reason the person is working in the state is because of their military active duty then the state is not allowed to assess state income tax on their wages. States are also prohibited from increasing the servicemember’s spouse’s state tax liability by including the servicemember’s income in the calculation of the couple’s state tax liability.

Another tax benefit of this act is that, as an active duty military member you can use this act to delay paying your income taxes that are due before or during your active duty for up to 180 days after your termination of duty. For more information on how to use this benefit for deferring tax liability payment please refer to IRS publication entitled Armed Forces Tax Guide.

Death Gratuity

If you are the survivor of a member of the military that died as a result of their active duty, then you will be entitled to the military’s Death Gratuity in the amount of $12,000. In the past only a portion of this amount was not taxable, however, as of September 10, 2001 the full amount of this gratuity has been reclassified as completely non-taxable. If you paid taxes on a Death Gratuity for a death of a servicemember after September 10, 2001, you may be able to request a refund. To do this you will probably need to file an amended tax return.

Reserve Component Travel Expenses

As a reservist you are allowed to deduct your travel expenses that are caused by fulfilling your military responsibilities as long as your duty requires you to travel more than 100 miles away from your primary home of residency. To claim this deduction you will enter your travel expense amount on your Form 1040, on line 24, and not on your Schedule A as a miscellaneous deduction.

Third Party Designee

If you are serving overseas, then you may also want to check the Yes box on your tax return to ensure that the IRS can talk to a third party that you designate about your tax return. This will allow your selected agent to represent your interests in regards to your tax return and to answer any questions that they have regarding your return while you are out of the country, or on active duty.